There’s been a noticeable shift in the way Canadians are spending. In May, retail activity took a clear step back, signaling that consumers may be growing more cautious. It wasn’t just a slight dip either. Based on early data from Statistics Canada, retail sales dropped by 1.1 percent, marking the steepest monthly decline in a year. That pullback more than erased the small 0.3 percent gain seen in April.
What’s behind the shift? A lot of it comes down to car sales. For months, buyers had been hurrying to make big purchases, trying to beat potential price hikes tied to trade tariffs. But that urgency seems to have faded. With vehicles and auto parts making up a quarter of all retail sales, even small changes in demand can create noticeable swings. And the numbers suggest that after a busy spring, Canadians simply slowed down.
April’s increase was largely powered by the auto sector, but when those sales are stripped out, the picture changes. Core retail sales actually fell by 0.3 percent that month, which was worse than many economists had expected. It also marked the second straight month of decline for sales outside the auto industry.
Across the country, the story played out in different ways. British Columbia, Ontario, and Quebec all saw growth in retail activity, mostly because of strong car sales. But in provinces like New Brunswick, where car buying dropped off, overall sales took a hit.
The bigger concern now is what this means for the economy in general. Canada got off to a decent start this year, but the momentum appears to be fading. As the short-term boost from tariff-driven trade and inventory activity dies down, and households continue to feel uncertain, the economy could flatten or even shrink slightly in the second quarter.
Spending patterns suggest people are becoming more careful. Discretionary spending, especially on clothing and accessories, has softened. Even though April saw a modest increase in core spending, the growth came from essentials and home-related items like food, furniture, and sporting goods.
The Bank of Canada is keeping a close eye on all of this. It has paused interest rate changes for now, trying to evaluate the combined effects of inflation and tariffs. Some experts believe the pause might turn out to be permanent, while others still expect more rate cuts later this year. That decision will likely come down to the data released over the next few weeks. July 30 is when the central bank will make its next move.
Economists are offering cautious interpretations. Andrew Grantham at CIBC noted that May’s decline might not signal lasting weakness. It could just be a short break after several strong months of vehicle sales, similar to trends recently seen in the United States. Meanwhile, Charles St-Arnaud from Alberta Central pointed out that while trade tensions have clearly had an impact, early signs of recovering business and consumer confidence are beginning to emerge. He believes the worst effects may have already passed, even if a quick rebound is not expected.
Still, the landscape remains unclear. Back in April, over one-third of retailers reported being affected by trade-related disruptions. Price changes, supply chain problems, and shifts in consumer demand were the most common complaints. Even sectors that showed monthly growth still reported feeling the pressure.
In terms of physical goods sold, April brought a slight 0.5 percent rise, which offered a bit of encouragement. But for May, the preliminary estimate didn’t include detailed sector or provincial breakdowns, and it was based on a smaller sample of responses than usual. That makes the picture somewhat blurry, though the downward trend is hard to ignore.
For many Canadians, the spring brought a cooling of spending habits. Uncertainty around prices, interest rates, and future income seems to be weighing on choices. Whether this is just a pause or something more lasting remains to be seen, but it’s clear that the mood of the consumer is shifting—and that shift is now showing up in the numbers.